Diageo sees silver lining in southern Europe cloud

31 January, 2013

ByHamish Smith

Diageo CEO Paul Walsh today said down-trading markets in southern Europe could have a positive effect on Diageo’s Scotch brands.

At the London-based press conference for Diageo's interim results for the six months ended December 31, Walsh said: “The silver lining to the cloud of southern Europe is we are not selling as much young Scotch in markets like Spain and Greece as we were, so we can hold on to that liquid longer – sell it to Latin America, Asia or Africa, probably as 12-year old.”

Diageo will continue to be “visible” in southern Europe - a region that drove wider Europe's net sales decline of -19% - but will “tailor” its investments.

Walsh summed up the region’s blighted markets, by saying: “fundamentally you have higher unemployment and less disposable income”.

In global terms Diageo has seen double-digit growth in Scotch sales. The category now makes up 81% of the group's whisk(e)y sales, which in turn is 37% of total net sales.

Walsh said: “The brands are in very good shape. Our Scotch whisky grew 10%, Johnnie Walker again grew 14%. We’ve announced an investment programme to deliver £1bn into Scotland. It’s a great story for Scotch, it’s a great story for our markets, it’s a great story for Scotland.”

In South Korea the Scotch category has shrunk. Diageo also witnessed the decline: “We have underperformed the category. We took a price increase ahead of where we should. We have had to realign that, equally the competition has followed to a certain extent.

“We’re always going to have a market such as [what’s happening in South] Korea. It is a testimony to the geographic strength and diversity of this company that we can absorb that.”

India will one day, according to Walsh, “ be one of the world’s biggest Scotch markets".

“Further opening of trade with India, duty reduction for imported brands in conjunction with what would be a very strong base with USL could give further impetus to Scotch whisky sales," he added.

On the future of Whyte & Mackay, which is part of the USL-Diageo deal, Walsh said he was unable to comment as the issue is “before the regulators”.

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The wine trade can be divided into two fundamentally opposed camps. on one side, you have the romantic idealists who believe that wine is – or can be – something special, bordering on mystical: an elixir like no other, comparable to the greatest works of art.